The United States Supreme Court ruled 5-4 today in Obergefell v. Hodges that the Fourteenth Amendment requires all 50 states to (1) license a marriage between two people of the same sex, and (2) recognize a marriage between two people of the same sex, which was valid in another state. The legal impact of this decision will be far-reaching in states that did not previously recognize same-sex marriages. Although the implications of the decision will be broad, particular attention should be paid to the estate planning and tax implications of this decision.
In 2013, the Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA), making various marital benefits available to same-sex couples on the federal level. Some examples of rights available at the federal level include:
- The marital deduction whereby a spouse may transfer an unlimited amount of assets to his or her spouse without paying estate or gift tax;
- Estate tax exemption portability, which allows the surviving spouse to save the unused estate tax exemption amount of the predeceased spouse;
- Gift splitting allowing spouses to benefit from each other’s gift tax annual exclusion by allowing a gift made by one spouse to any third party to be considered made one-half by each spouse; and
- Ability to roll over an inherited Individual Retirement Account (IRA) into an IRA owned by the surviving spouse and treat those assets as if they originally belonged to the surviving spouse, which may provide benefits for taxation purposes.
Although the Court’s 2013 ruling provided some consistency regarding benefits at the federal level, the states remained divided on many important issues for same-sex couples. This includes concerns regarding estate planning matters for same-sex couples who had a valid marriage in one state and later move to a state where the marriage was no longer recognized. The Court’s decision in Obergefell will expand the availability of marital benefits in each state, providing increased predictability and uniformity for attorneys and financial planners nationwide. Although each state has its own laws and statutes, some examples of state-level marital rights include:
- Minimum inheritance rights for a surviving spouse such as an elective share or year’s allowance;
- Obligation to support a spouse for his or her necessary expenses (e.g. medical care);
- Exemption for the surviving spouse from Medicaid estate recovery;
- Preferential priority to serve as guardian for a spouse in guardianship proceedings; and
- The ability for one spouse to serve as the default health care proxy for the other spouse in the absence of a health care power of attorney providing otherwise.
In North Carolina, same-sex marriages became valid on October 10, 2014, when U.S. District Court Judge Max O. Cogburn, Jr. of Asheville ruled Amendment One unconstitutional. Amendment One was a voter-approved same-sex marriage ban amending the North Carolina Constitution. The Supreme Court’s opinion today in Obergefell fortifies Cogburn’s decision and similar rulings in other states where same-sex marriage bans were enacted and later ruled unconstitutional.